Investor Glossary-futures optionInvestor Glossary-futures optionInvestor Glossary-futures optionInvestor Glossary-futures optionInsightful stock market charts - Click here
Categories    # A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Futures Option

The HTML to link to this page

A futures option is an option on a futures contract. The futures option is common for both commodity futures such as wheat and coffee contracts and financial futures such as Japanese Yen and S&P 500 Index contracts. The key difference between a futures option and an option on a futures contract's underlying asset is delivery convenience. A futures contract for 1000 barrels of oil is much easier to deliver than the oil itself. Upon exercise of the futures option, the delivered futures contract is typically closed out immediately. The futures option is therefore typically settled entirely in cash. Cash settlement of the futures option appeals to investors with insufficient capital to purchase the underlying asset. The close coupling of futures and futures option markets facilitates hedging, speculation, and arbitrage, making the markets more efficient. Fischer Black developed a model to price the futures option in 1976.

Rate this futures option definition...

Learn about investing with the Investor Glossary Term of the Day

Click here for insightful stock market charts. Where is the market headed? The answer may surprise you. Find out
with the exclusive & Barron's recommended charts of Chart of the Day.

Popular Terms: option premium, command economy, retained earnings, deferred revenue, risk management, 401a, dividends payable, 1031 exchange, Zero Cost Collar, annual return, covered put, per diem, 144a, APR, liquidity ratio, FTSE, current ratio, average price per share, reverse mortgage, real GDP, limit order, stock market close, stock split, wholly-owned subsidiary, deferred tax, in escrow, labor relations, required rate of return, debt service coverage, FICO score, implied volatility, EBITDA, quality assurance, cancelled check, minority interest, margin rate, balance sheet, ex-dividend, class C shares, irrevocable trust, open position, 1035 exchange, phantom income, ex-dividend date, inflation, diluted share, VIX, Key Rate Duration, LIBOR

Accounting | Banking | Bonds | Brokers | Economy | Futures | Mutual Funds | Options | Real Estate | Retirement | Stocks | Taxes | Technical Analysis
Investor Glossary | Term of the Day | Suggest a Term | Chart of the Day | Dogs of the Dow
©2004-2015 Investor Glossary - All rights reserved - Terms of Use